Japan's economy in the July-September quarter expanded 0.4 percent from the previous quarter, or 1.7 at the annualized rate, in price-adjusted real terms, according to a preliminary gross domestic product (GDP) report from the Cabinet Office. That was the fourth consecutive quarter of positive growth, although the pace slowed compared with a larger GDP rise (3.3 percent on an annual basis) in the April-June period. The emerging picture is one of a solid expansion led by domestic demand, with two big engines of growth -- consumer spending and business investment -- following a firm trend.
The Bank of Japan appears poised to declare an end to deflation perhaps as early as next spring if the current expansion continues. The favorable economic outlook has pushed up stock prices, with daily trading volume exceeding the levels reached in the booming late 1980s. In fact, the economy is in the third expansionary phase since the collapse of the asset-price bubble in 1990, with key sectors of demand reinforcing each other in a long-running virtuous cycle.
There is no assurance, however, that this forward momentum will continue uninterrupted. One major concern is that the economy might slide back into a slump if, for example, the government's tax-increase policy dampens consumer confidence.